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Bailing Out the Bailout: Don’t Hold Your Breath

Watching Congress in debate is like subjecting yourself to a parade of television commercials. You hear an unending stream of features and benefits—as well as a zillion reasons why you shouldn’t buy the other guy’s product.

Tuning in to C-Span last night (always an uplifting experience), I heard speaker after speaker lambasting the financial bailout bill Congress passed in September. Republicans in particular were hosed about the $350 billion that went to AIG and other banks and which has produced zilch as far as freeing up credit goes.

That’s the background in which the Senate will debate today the newly passed (by the House) auto bailout bill. At this point, passage looks doubtful. On C-Span I heard a lot of talk about throwing good money after bad. What I didn’t hear was how really dismal our economic picture is right now, and how dependent we are on the auto industry, still.

Compromise, as in politics, was tried in the auto bill. That doesn’t seem to have worked—or at least brought Republican Senators to heel to the President. In the Senate discussions, it would help to focus debate on the realities of the car industry instead of praise and blame for past actions, or promoting more features and benefits of the proposal at hand. Here are some things the World’s Greatest Deliberative Body might want to consider:

1. The auto industry’s greatest problem, as David Leonhardt pointed out, is not really labor cost (only about 10% of vehicle cost); it’s the fact that “many people don’t want to buy the cars Detroit makes.” The Big Three cannot survive in anything like their present form.

2. What is the real purpose of the bailout bill? It can’t solve the basic economic and management problems of the industry. If Congress needs to create a holding action until March, then it should take the three months to study and adopt the best reorganization plans because each of the Big Three is in a different financial situation and requires different treatment. In other words, adopt the bridge loan concept that the bill proposes. The larger question: how far is the U.S. prepared to support and/or subsidize its basic industries?

3. If the purpose of the bill is to provide economic stimulus and prevent job loss, it’s not a bad deal. Keeping people in their jobs is lots cheaper than providing unemployment or creating new jobs. So $14 billion may not be a bad price to pay for keeping some 2 million workers from being dumped on the streets. Plus giving the industry some breathing room.

Finally, as often happens, Congress is attempting to solve massive (and different) problems through a piece of hastily considered legislation. Get your priorities straight, folks. The main difficulty here is time: the possibility that GM will be out of cash by the end of the year.

As a footnote, a new Bloomberg/LA Times poll finds that “47% of Americans favored some sort of financial rescue for automakers, slightly more than the 42% who opposed a rescue.”

As of 6:00 p.m. Thursday, Republicans are proposing an alternative bill. Do you think Congress can still thrash out a solution? Or will it come to bankruptcy?